By uncovering and eliminating hidden shrinkage—despite a pour cost that might look pretty good—this bonanza could be yours. “Shrinkage” refers to the amount of alcohol lost in your bar due to over-pouring, miss-ringing, theft, and waste. A 2000 study found that almost every restaurant bar has too much shrinkage; the average loss is more than 20 percent—one drink in five.
The good news is that if you tighten up your controls, you can increase your sales and decrease your costs without bringing in any new customers.
Most operators have a hard time believing that they could be living with losses of this magnitude without knowing it. And that is the main reason why these problems persist. The difficulty is not exactly denial, but rather that shrinkage has traditionally been “controlled” by carefully monitoring pour cost. This approach is not only inadequate; it actually works to hide shrinkage problems.
A pour cost of 20 percent sounds impressive but not if it should have been 17 percent. You have to calculate your ideal or theoretical pour cost, which will vary depending on all kinds of factors such as the price of your drinks, your pour sizes, and, notably, your sales mix.
Every drink you sell has a different pour cost. Some, such as a vodka and tonic might be as low as 10 percent while others, such as a super-premium martini, are usually well over 30 percent. Some months you will sell more vodka tonics, and your pour cost will go down. Other months you will sell more super-premium-based cocktails and your pour cost will go up. So why do most operators target the same, static pour cost every month? Furthermore, these pour cost swings do not tell you anything at all about shrinkage levels.
Another reason for 20 percent shrinkage is simple: virtually all bartenders over-pour. Since they think that a larger pour is going to lead to a larger tip, and tipping comprises the lion’s share of their income, almost every drink is over-portioned. An extra half-ounce might not sound like a big deal, but 500 over-pours is equivalent to giving away 150-plus drinks.
Although it sounds counter-intuitive, over-pouring usually results in lower sales. The reason is that most customers are only going to consume drinks until they reach a “comfort level.” That level depends on the circumstances. For example, if I have to drive home, I stop ordering when I get the first little buzz from the alcohol. That is usually on my third drink. But if my first two drinks are over-poured, I will feel the buzz before I order the third drink, and the bar loses a sale.
A profit increase of $4,000 to $10,000 a month is certainly a good incentive to take a careful look at your bar’s profitability, but where should you start? Here are some tips:
* Understand that a “good” pour cost may not necessarily be all that good.
* Calculate your ideal or theoretical pour cost every week. You should be within 1/2 of 1 percent of your ideal. For example, if your ideal pour cost is 18 percent, your actual pour cost should be 18.5 percent or less.
* Don’t assume that your bartenders know how to pour spirits and draft beer correctly. Purchase a spirits pour-training device and test staff frequently, and invite your beer vendor to run a draft-pouring seminar for your bartenders.
* Hold your bar staff accountable by matching your inventory depletion to your sales reports. Start by counting your beer and wine bottles every week and comparing them to your sales tapes
* Consider hiring an alcohol-auditing company to help you audit draft beer and spirits. They will weigh all tapped kegs and open liquor bottles to compare with your sales. Your increased profits will pay their fee many times over.
Written by Ian Foster
Ian Foster is the Master Franchisee for BEVINCO’s West Coast operations. BEVINCO (www.bevinco.com) is a liquor inventory control service for bar and restaurant owners whose confidential reports uncover hidden losses. This article originally appeared in the June 2006 issue of Sante, the Magazine for Restaurant Professionals.